In a multiple predetermined overhead rate system, each production department may have its own predetermined overhead rate. Such a system, while more complex, is considered to be more accurate. Since it can reflect differences across departments in how overhead costs are incurred. For example, overhead might be allocated based on machine-hours in departments that are relatively machine intensive. When multiple predetermined overhead rates are used, overhead is applied in each department according to its own overhead rate as a job proceeds through the department.

In Business:

Enhancing the Accuracy of Product CostsOnly 34% of surveyed manufacturing firms reported that they used a single, plant wide overhead rate. The use of multiple overhead rates to obtain more accurate product costs was reported by 44% of the firms. The remaining 22% use activity based costing–an even more complex, and presumably more accurate, approach to the allocation of overhead costs to products.